Three's a crowd in commercial TV

There may no longer be room for three commercial broadcasters in Australia and Ten looks like the odd one out, says pioneering funds manager Laurence Freedman, who made his fortune plucking Ten from receivership in the 1990s and relaunching it as the most profitable free-to-air network in Australia.

‘‘Maybe we only need two (commercial free-to-air networks) because advertisers will only advertise on two,’’ he told BusinessDay.

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With Nine on the verge of a revival and Seven still leading the ratings there is no question as to which network is in peril.

In its financial report for the year ending August 31, Ten revealed a $13 million annual loss and continued with a restructuring program, including cutting up to 100 jobs. This week, Ten announced that its Breakfast show has also now been cut.

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'A different company'

In Ten’s annual report released today, company chairman Lachlan Murdoch said: ‘‘The company acknowledges our ratings and revenue in 2012 were not what we expected, and that our programming schedule on the primary Ten channel did not perform as hoped. At any time this is unacceptable, let alone in a weakened advertising market.’’

He promised things will improve for the coming year.

‘‘There is no question that Ten Network Holdings enters 2013 as a different company than it was just 12 short months ago,’’ Mr Murdoch said. ‘‘We are looking forward to the year ahead.’’

Mr Freedman tweeted this week that Ten ‘‘have lost the plot’’ and, alluding to the latest job cuts from its newsroom, suggested the network planned a return to profitability by showing the station logo and advertising.

Ten Network has now fired dozens of newsroom staff. Soon to return to profits by showing station logo plus ads... Have lost the plot.

He is not the only one to question whether Australia will remain home to three commercial networks.

Australia an 'outlier'

Media analysts from investment bank Citi describe the Australian market as an ‘‘outlier’’ with three commercial free-to-air (FTA) networks instead of the usual two incumbents that can be found in much bigger economies like Germany and France.

And it comes at a cost despite our market’s out-sized per capita spending on advertising.

‘‘For the Australian market, operating three FTA networks means the broadcasters are scrapping over a relatively smaller slice of the local advertising market.’’

Can Australia support three commercial networks? Citi said: ‘‘Our review of international markets would suggest that sustaining three broadcasters could prove challenging’’ although it did say that local market dynamics provide structural support for the FTA broadcasters.

Steve Allen, chief executive of media consultants Fusion Strategy said Ten’s performance had been an ‘‘unmitigated disaster’’ and said its survival was not guaranteed by any means but that there was room for a good number three player.

‘‘It’s the worst time to be a bad number three,’’ he said.

Golden run for Freedman

Ten shares were trading at 28 cents today, or less than one-tenth of the price at which Mr Freedman sold out at in 2004.

He described the epiphany he had when buying a mobile phone that year with ‘'back channel'’ - referring to a mobile user's ability to communicate back over the network in the same manner as a desktop computer over the internet.

It is a feature TV networks are still struggling with - connecting advertisers and its mass audience directly.‘‘That was the beginning of the end to me,’’ Mr Freedman said.

‘‘What I was doing was buying the future and holding on to the past,’’ he said with reference to the mobile phone purchase and his shareholding in Ten at the time.

It had been a golden run since Mr Freedman and a group of businessmen that included CanWest boss, Izzy Asper and ad man John Singleton acquired the network from Westpac in 1992 and aimed it at the lucrative 18-39 age group with cheap programming.

It is a run he is not expecting to be repeated by the current crop of billionaire shareholders like James Packer, Lachlan Murdoch and Gina Rinehart, who have made huge losses on their collective investment.

‘‘They were, I think, tempted by the fact it had fallen so much,’’ he said.

There was a reason for this. Ten’s core 18-39 year old audience were leaking to rival network multi-channels, and to the internet.

Ten then made an expensive bet it could expand its audience with more costly programming.

The strategy didn’t work and it was left with a more costly business model and third place just as the media advertising contracted.

Mr Freedman said he has never been tempted to buy back in and doesn’t know what the solution is for Ten, but does not see much upside for the other networks either.

‘‘There’s no excitement in this TV industry any more, it’s a real slog,’’ he said.